Employee Conflicts of Interest: Warning Signs and How to Investigate Them

Employee conflicts of interest are not always obvious. A member of staff may appear to be making an ordinary commercial decision while having an undisclosed relationship with a supplier. A manager may have a financial interest in a company receiving work from their employer. An employee might also be building a competing business alongside their existing job.

None of these circumstances automatically proves wrongdoing. However, an undisclosed conflict of interest at work can create financial, reputational and legal risks for an employer, particularly where the employee has influence over purchasing, recruitment, customer relationships or commercially sensitive information.

Employers therefore need to distinguish between suspicion and evidence. An investigation should establish the relevant facts fairly and proportionately rather than beginning with an assumption that misconduct has occurred.

This guide explains common employee conflict of interest examples, warning signs to look for and how an employer can investigate a conflict of interest while complying with English employment and data protection law.

What is an employee conflict of interest?

An employee conflict of interest arises where an employee’s personal interests, relationships or outside activities could interfere with, influence or appear to influence the way they carry out their responsibilities to their employer.

The existence of a conflict does not necessarily mean that an employee has acted dishonestly. In many organisations, conflicts can be managed appropriately once they have been disclosed. The greater concern often arises when a material interest has not been declared, particularly where the employee has participated in decisions from which they or someone connected to them could benefit.

An employer’s employment contracts, conflict of interest policy, procurement rules, gifts and hospitality policy, code of conduct and declaration procedures should provide the starting point for determining what employees are expected to disclose.

Actual, potential and perceived conflicts of interest

It can be useful to separate employee conflicts of interest into three broad categories.

Actual conflict of interest

An actual conflict exists where an employee’s personal interest is already relevant to a decision or responsibility they are exercising.

For example, a procurement manager may be responsible for selecting contractors while having an undisclosed financial interest in one of the businesses bidding for work.

Potential conflict of interest

A potential conflict exists where circumstances could develop into a direct conflict, even if the employee has not yet made a decision affected by their outside interest.

An employee who establishes a business offering services that compete with their employer may create a potential conflict, particularly if they have access to customer information, pricing structures, tender documents or other commercially sensitive material.

Perceived conflict of interest

A perceived conflict exists where the circumstances could reasonably give others the impression that an employee’s independence has been compromised, even where no improper decision has actually been made.

Perceived conflicts should not automatically be treated as misconduct. However, they can still damage confidence in procurement, recruitment or management decisions and may justify clarification.

Employee conflict of interest examples

Conflicts can arise in almost any organisation, but they are particularly significant where employees have control over money, suppliers, contracts, recruitment, confidential information or customer relationships.

• Relationships with suppliers: An employee recommends or awards work to a supplier owned by a relative, partner, friend or business associate without declaring the relationship.
• Undisclosed financial interests: An employee owns shares or has another financial interest in a supplier, customer, contractor or business affected by decisions they make at work.
• Outside employment: An employee carries out paid work elsewhere which competes with their employer, interferes with their duties or creates a conflict with contractual obligations.
• Operating a competing business: An employee establishes or participates in another company offering similar products or services and potentially targets the same customers.
• Gifts, hospitality or personal benefits: An employee receives undisclosed benefits from a supplier or other commercial party involved in decisions they influence.
• Recruitment decisions: A manager influences the appointment, promotion or remuneration of a relative or someone with whom they have a close personal relationship without disclosing that connection.
• Customer diversion: An employee directs customers, opportunities or enquiries towards a business in which they have a personal interest.

Again, the surrounding facts matter. Having a relative who works for a supplier does not itself prove misconduct. The important questions are whether the relationship should have been declared, whether the employee influenced relevant decisions and whether the organisation’s policies or commercial interests were affected.

Warning signs of an employee conflict of interest

Conflicts are sometimes discovered through declarations or routine compliance checks. In other cases, a concern develops because several pieces of information do not appear to fit together.

Warning signs may include:

• A particular supplier receiving repeated work despite higher prices, performance concerns or stronger competing bids.
• An employee resisting attempts to obtain alternative quotations or review a supplier relationship.
• Invoices, addresses, telephone numbers or business details that suggest a connection between an employee and a supplier.
• An employee repeatedly meeting or communicating with a competitor outside their normal responsibilities.
• A new business appearing to offer unusually similar services, wording, pricing or propositions to those of the employer.
• Public company records showing an employee or close associate connected to an organisation with which the employer does business.
• Unexplained gifts, hospitality, commissions or benefits connected with commercial decisions.
• Customers reporting that an employee has approached them independently or encouraged them to use another business.

These are indicators rather than proof. There may be an entirely legitimate explanation. A fair investigation should test alternative explanations instead of interpreting every unusual circumstance as evidence of wrongdoing.

Why undisclosed conflicts can become serious

A conflict of interest can undermine the quality of commercial decision-making even where no money has been stolen from the business.

A procurement decision influenced by a personal relationship might result in the company paying more than necessary, using an unsuitable contractor or excluding better suppliers. An employee with an outside competing business might also find themselves handling confidential pricing, customer lists or business opportunities that could benefit their own interests.

In more serious situations, the facts may raise concerns extending beyond an internal conflict policy. For example, the Bribery Act 2010 includes offences relating to bribing another person and being bribed.^[7] An undisclosed supplier relationship should not automatically be described as bribery, but suspicious payments, commissions or benefits may require specialist legal advice.

How to investigate a conflict of interest at work

An employer should approach an investigation as a fact-finding exercise. Acas guidance states that workplace investigations form an important part of a fair disciplinary process, and employers should follow a fair procedure when concerns may lead to disciplinary action.^[1]

The Acas Code of Practice also promotes fairness and transparency in disciplinary procedures. Employment tribunals can take compliance with the Code into account in relevant cases.^[2]

Define the concern before investigating

The employer should first identify exactly what is suspected.

An allegation such as “we think the employee has a conflict of interest” is too vague. A more useful investigation question might be: “Did the employee fail to disclose a financial or personal connection with Company X while participating in decisions to award work to that company?”

A defined question helps determine which documents, individuals, dates and transactions are genuinely relevant. It also prevents an investigation expanding unnecessarily into unrelated areas of the employee’s private life.

Check the relevant policies and contractual terms

Before deciding that a connection represents misconduct, employers should establish what their own rules require.

This may involve reviewing the employee’s contract, conflict of interest policy, outside employment rules, confidentiality obligations, procurement procedures and gifts and hospitality policy. The investigation should consider what the employee was required to declare and whether those requirements were communicated clearly.

Where contractual interpretation or possible dismissal is involved, obtaining advice from an employment solicitor or HR professional can help reduce the risk of reaching conclusions that the evidence does not support.

Review internal business records

Many conflicts can initially be investigated without external surveillance or extensive enquiries.

Relevant material might include supplier records, tender documentation, invoices, expense claims, conflict declarations, gifts and hospitality registers, authorised access logs, company vehicle records and other information legitimately held by the organisation.

The objective should be to establish a timeline. For example, when did the employee become involved with the external business? When was the supplier appointed? Which decisions did the employee participate in? Were other decision-makers aware of the connection?

Employers should be careful when reviewing employee communications. Access to workplace email, messaging systems or device data must be appropriately authorised, consistent with relevant policies and compliant with data protection requirements. An investigation does not give an employer unrestricted access to an employee’s private accounts or communications.

Use open-source research carefully

Open-source research can be particularly useful when investigating an undisclosed business connection.

Depending on the circumstances, research might examine Companies House records, publicly filed company information, business websites, professional profiles, public advertisements and other material that is lawfully accessible online.

For example, Companies House records might establish that an employee became a director or person with significant control of a company before that company began competing for work. Public business material might show that a supposedly unrelated company is operating from an address already connected to one of the individuals involved.

However, publicly available information is still capable of being personal data. The Information Commissioner’s Office states that organisations using personal information obtained from publicly accessible sources must still consider their lawful basis and their transparency obligations.^[4]

Employers should therefore avoid assuming that anything appearing on the internet can be collected, combined and retained without restriction.

When might a private investigator help?

An external investigator may be useful where internal records have established a credible concern but cannot answer the remaining questions.

For example, a company may discover that an employee has an undisclosed connection with another business but still need to establish whether that business is genuinely operating, whether the employee is actively involved in it, or whether relevant meetings and commercial activity are taking place.

At SPS Investigations, we provide corporate investigation services for businesses in London and the Home Counties. We can help businesses examine clearly defined concerns through lawful open-source enquiries, corporate research and, where justified, discreet observation and factual reporting.

Our role is to establish relevant facts rather than decide whether an employee should be disciplined or dismissed. Those decisions remain with the employer and should normally be made with appropriate HR or legal input.

Can an employee be placed under surveillance?

Surveillance should not be the automatic response to a suspected conflict of interest.

Where there is a legitimate and sufficiently serious concern, targeted observation from public places or other locations an investigator is lawfully entitled to use may sometimes help answer a specific question. For example, it may be relevant to establish whether an employee is regularly attending and apparently working at the premises of an undisclosed competing business.

The scope must remain proportionate. A concern about an undeclared business interest would not normally justify general monitoring of an employee’s family life, home or unrelated private activities.

Data protection law also applies when monitoring produces information about identifiable workers. The ICO’s worker-monitoring guidance confirms that employers must consider the UK GDPR and Data Protection Act 2018 when monitoring workers.^[3]

The Data (Use and Access) Act 2025 made amendments to the UK’s data protection framework, with its data protection provisions fully in force by June 2026. It amended rather than replaced the UK GDPR and Data Protection Act 2018.^[5]

Covert monitoring requires particular caution. ICO guidance states that monitoring staff without their knowledge should be limited to exceptional circumstances where informing them would defeat the purpose, should form part of a specific and time-limited investigation, and should be preceded by a data protection impact assessment.^[6]

What a private investigator cannot lawfully do

Hiring a private investigator does not give an employer access to special powers.

We cannot hack an employee’s email, social media or online accounts. Unauthorised access to computer systems and data is regulated by the Computer Misuse Act 1990.^[8]

We also cannot unlawfully intercept private communications, enter private property without permission, obtain confidential information through unlawful means or use intrusive methods simply because an employer would like additional evidence.

Any investigation we undertake must have an identifiable purpose and appropriate scope. If a proposed method would be unlawful or disproportionate, we would not use it.

Interviewing the employee and considering their explanation

External research may establish a connection, but it will not always explain it.

An employee shown as a director of another company may have resigned operationally but not updated a record immediately. A supplier may be owned by a relative, but the relationship could already have been disclosed to another manager. Meetings that appear suspicious may have a legitimate commercial explanation.

Acas advises that an investigation should be fair and objective and should gather as much relevant information as is reasonable rather than attempting simply to prove guilt.^[1]

The employee should therefore normally be given an appropriate opportunity to respond to the relevant evidence before a disciplinary conclusion is reached.

A conflict does not automatically mean misconduct

This distinction is important.

An employee may have a genuine conflict of interest but have disclosed it appropriately. The organisation might decide that the conflict can be managed by removing the employee from particular decisions, changing reporting arrangements or requiring additional approval for transactions.

Even an undeclared conflict does not automatically amount to gross misconduct. The employer should consider the contractual rules, seriousness of the conduct, employee’s knowledge, whether there was dishonesty, whether the business suffered loss and how similar cases have previously been handled.

Where dismissal is being considered, employers should take employment law advice rather than assuming that evidence of a connection alone is sufficient.

Reducing the risk of future conflicts

The best time to address a conflict of interest is usually before it develops into a disputed investigation.

Employers can reduce risk by having clear disclosure procedures and ensuring employees understand what relationships, financial interests, second jobs, directorships, gifts and outside business activities must be declared.

Employees with procurement, finance, recruitment or senior management responsibilities may warrant periodic declarations because their circumstances can change after they join the organisation.

A well-managed declaration process can also protect employees. Someone who openly discloses a potential conflict gives the employer an opportunity to manage it rather than allowing an innocent connection to appear suspicious later.

How SPS Investigations can help with employee conflicts of interest

At SPS Investigations, we work with businesses where there is a genuine commercial concern but the available information does not yet provide a clear answer.

We can help establish links between people and businesses, examine lawfully accessible corporate and online information, document relevant public activity and provide clear factual reports. Where surveillance is appropriate, we keep the investigation focused on the specific issue the employer needs to establish.

We are based in London and provide corporate investigation services for businesses across London and the Home Counties.

We do not begin investigations with a predetermined conclusion. Evidence that disproves a suspicion can be just as important as evidence that supports it, particularly where an employer needs to make a fair employment decision.

If you are concerned about an undisclosed supplier relationship, competing business, outside employment or another potential employee conflict, you can get in touch with us to discuss the situation confidentially.

Frequently asked questions

What is a conflict of interest at work?

A conflict of interest at work occurs when an employee’s personal interests, relationships, financial interests or outside activities could influence, or appear to influence, how they perform their duties for their employer. Conflicts are not automatically misconduct, particularly where they are properly disclosed and managed.

What are common employee conflict of interest examples?

Examples include awarding work to a business owned by a relative, holding an undisclosed financial interest in a supplier, accepting inappropriate benefits from a contractor, working for a competitor, running a competing business or influencing recruitment decisions involving someone with whom the employee has a close personal relationship.

Can an employee have a second job?

Having a second job is not automatically a conflict of interest or misconduct. The position depends on the employee’s contract, workplace policies and the nature of the additional employment. Concerns may arise where the second job competes with the employer, affects performance or involves confidential information or customers belonging to the employer.

Is failing to disclose a conflict of interest gross misconduct?

Potentially, but not automatically. The employer should consider the seriousness of the conflict, applicable contractual and workplace rules, whether the employee acted dishonestly, whether they personally benefited and whether the business suffered harm. Employers should follow a fair disciplinary process before reaching a conclusion.

Can an employer check Companies House and social media when investigating an employee?

Lawfully accessible corporate records and public online information may be relevant to an investigation. However, publicly available personal information is still subject to data protection law. Employers should have a legitimate purpose, appropriate lawful basis and proportionate scope for any research they carry out.

Can an employer hire a private investigator to investigate a conflict of interest?

Yes. An employer can instruct a private investigator where there is a legitimate business need and the proposed investigation is lawful, necessary and proportionate. An investigator may assist with corporate research, open-source enquiries, factual reporting and, in suitable circumstances, targeted surveillance in public places.

Can a private investigator follow an employee?

Targeted surveillance may sometimes be appropriate where there is a specific and legitimate investigation objective. It should not become unrestricted monitoring of an employee’s private life. The employer and investigator must also consider data protection, privacy and proportionality before surveillance takes place.

What should an employer do after finding evidence of a conflict of interest?

The employer should consider the evidence alongside its policies and give the employee an appropriate opportunity to explain the circumstances. Evidence of a connection should not automatically result in disciplinary action. Where the matter is serious, the employer should consider advice from HR or an employment solicitor before deciding the outcome.

This article focuses primarily on employment investigations under English law and is intended as general information rather than legal advice. Employers dealing with possible disciplinary action should consider obtaining advice from an employment solicitor, HR professional or data protection adviser.